Debt consolidation: personal loan or roll it into your home loan?

Debt consolidation means rolling several debts into one new loan, so there is one regular repayment to one lender, which is how ASIC's Moneysmart describes it. The debts most often consolidated are credit cards, personal loans, store cards, buy now pay later balances and car loans. Moneysmart describes refinancing as replacing or extending an existing loan with a new one, with the same lender or a different lender, and the two can be combined: a home owner refinances the mortgage and the new loan pays out the other debts.

There are two broad routes. A debt consolidation loan is a personal loan, unsecured or secured against a car, sized to pay out the other debts over its own fixed term. Rolling debt into the home loan means refinancing the mortgage to a larger amount, or topping up the existing loan, so the debts are paid out at settlement and then repaid over the mortgage term. FundUp's refinancing service covers the second route. The rest of this guide compares the two on cost, security, equity and borrowing power.

The main difference between a personal debt consolidation loan and rolling debt into a home loan is how long the debt runs and what secures it, not only the interest rate. Moneysmart notes that people often consider turning unsecured debts such as credit cards into a single secured debt to get a lower interest rate. It also warns that consolidation can cost more if the rate or fees are higher than before, or if the debt takes longer to repay. Secured debt carries its own risk: if the new loan is not repaid, the home put up as security may be at risk, because the lender can sell it to recover the money.

Neither column is cheaper in every case. The table shows which questions to ask; the answer depends on the balances, the term left on each debt, the fees and whether the old credit stays closed after settlement.

Spreading a short-term debt over a 30-year mortgage term usually lowers the monthly repayment but raises the total interest paid, even at the same rate. The example below isolates that term effect by using one rate in every row: 6.00% a year, which is illustrative only, not a current market, lender or FundUp rate. The balance is $30,000 of consolidated card and car debt, repaid as principal and interest with monthly repayments.

Rolled into the mortgage, the monthly repayment on the $30,000 falls by about $400, but the total interest rises by roughly $30,000, more than seven times the 5-year figure. Moneysmart's own example makes the same point: a $20,000 debt refinanced to a lower rate over a longer term reduces repayments but could increase the total cost. Moneysmart also cautions that a longer-term loan can cost more in interest and fees even when its rate is lower.

The gap closes only if the consolidated amount is repaid on a short timetable, for example as a separate loan split with higher repayments, or with regular extra repayments where the loan allows them. The FundUp calculators or Moneysmart's mortgage calculator can re-run this example with real balances, rates and terms.

Rolling debts into a home loan turns home equity into debt, so the loan to value ratio (LVR) rises and, past 80%, lenders mortgage insurance (LMI) can apply. Moneysmart defines LVR as the loan amount divided by the property's value, and gives the example of a $450,000 loan on a $600,000 house, an LVR of 75%. Adding $50,000 of consolidated debt to that loan takes it to $500,000, an LVR of about 83%.

That threshold matters because Moneysmart describes LMI as usually a one-off cost payable when the amount borrowed exceeds 80% of the property's value, and says LMI protects the lender, not the borrower. Moneysmart's switching guidance adds that with less than 20% equity, LMI can increase the cost of switching and outweigh the saving from a lower rate. Westpac, for example, measures LVR against the bank's valuation of the property, so a valuation below the owner's estimate raises the LVR. The lenders mortgage insurance guide explains how LMI is charged.

A lender assesses a consolidation refinance on whether the borrower can repay the new, larger loan with a margin for higher rates, and that test counts every remaining commitment. APRA, the bank regulator, says its mortgage serviceability buffer is 3 percentage points above the loan interest rate, the minimum that APRA-regulated banks must apply when assessing new borrowers. APRA limits on high debt-to-income housing lending have also been in effect since 1 February 2026.

Credit card limits are a common surprise. Westpac's borrowing-power page says a home lender will still look at card limits as potential debt even when the card is paid off completely, and that this affects how much it will lend. A card left open after consolidation can therefore keep reducing borrowing power, whatever its balance.

• Every debt to be paid out: lender, balance, limit, repayment, remaining term and any early payout fee.
• Recent statements for each card and loan, plus the current home loan statement.
• Income evidence and a realistic budget, because the lender tests the new repayment.
• A decision on each card: which will be closed, and which will have its limit reduced, at settlement.
• A copy of the credit report: Moneysmart says it records the credit products held and the repayment history, and that scores reflect the amount borrowed, the number of credit applications and whether repayments are made on time.

A mortgage broker arranging the refinance must act in the borrower's best interests when suggesting a loan, according to Moneysmart, and ASIC's Regulatory Guide 273 explains how ASIC assesses that duty under Part 3-5A of the National Credit Act.

Rolling debts into a home loan tends to work against the borrower when the term stretches, the costs pile up or the old credit gets used again. Moneysmart lists the conditions under which consolidation may help, including a clear end date where the new term is not longer than the current debts, and closing or reducing old credit cards and not taking on new debt. Where those conditions are missing, the table below sets out general warning signs. It is not a recommendation for any one household.

A consolidation refinance follows the same path as any home loan refinance, with the debt payouts added at settlement. The steps below are general; the home loan refinancing guide covers the refinance process in more detail.

1. 1List every debt. For each one, Moneysmart suggests recording the balance, the rate, the fees including any early payout penalty, the remaining term and the current repayment.
2. 2Check equity and costs. Work out the new LVR, then ask about the discharge fee on the current loan, any fixed rate break fee, the new lender's application, legal and valuation fees, and the Titles Queensland lodgement fee for registering the new mortgage.
3. 3Compare total cost, not the repayment. Moneysmart's mortgage switching calculator shows whether a switch saves money and how long it takes to recover the switching cost.
4. 4Stress-test the budget. Moneysmart suggests checking that the new repayment still works if interest rates rise, income drops or living costs go up.
5. 5Apply and settle. At settlement the old mortgage and the listed debts are paid out. FundUp's refinancing page gives two to four weeks from application to settlement as typical, depending on the current lender's discharge timeframes.
6. 6Close or reduce the old limits. Moneysmart notes that a card's balance must be $0 before it can be cancelled, so confirm each closure and keep the final statements.

FundUp is a Cairns-based mortgage broker serving Australia-wide, and it says its refinance comparisons include discharge fees, application costs and LMI. Its refinancing service covers debt consolidation into a home loan, while business debt restructuring sits with commercial finance.

A home owner struggling with repayments can ask existing lenders for help before taking on new credit. Moneysmart says a lender must consider a borrower for financial hardship assistance when asked, and a hardship variation can change the loan terms or temporarily pause or reduce repayments. The lender must write with the outcome of a hardship request within 21 days. A hardship arrangement does not affect the credit score; the credit report shows the arrangement, and the listing is deleted after 12 months.

Free financial counselling is the other first stop. The National Debt Helpline on 1800 007 007 connects callers with a financial counsellor, and callers are transferred to the service in their own state, including Queensland. Moneysmart says financial counselling is always free, and that businesses charging for it are debt consolidation and refinancing companies, not financial counsellors. Free legal advice is available at community legal centres and Legal Aid offices.

For tax debt, the ATO offers payment plans that break the debt into instalments over the shortest possible fixed period, although the general interest charge keeps accruing and compounds daily. Whether a payment plan suits a particular tax debt is a question for the ATO or a registered tax agent.